Home prices 'at their most affordable'

House prices are at their most affordable for a decade despite the recent property boom, it was claimed yesterday.

Abbey National said that rising incomes and falling interest rates meant more people could now afford to buy a house than at any other time during the past 10 years.

The banking group, which measured affordability in terms of the percentage of pre-tax income spent on mortgage repayments, found that on average first-time buyers now spent 14.1 per cent of their income on a mortgage, down from 15.6 per cent a year ago and 18.7 per cent a decade ago.

The greatest change in affordability has been in the South East, where the cost of servicing a mortgage has fallen from 20.1 per cent of income 10 years ago to just 14.9 per cent now.

East Anglia has also seen a sharp fall, with costs dropping from 19.3 per cent to 13.5 per cent of earnings during the decade. But Northern Ireland and Scotland have seen the smallest change in affordability, with people in Northern Ireland spending just 0.3 per cent less of their salary on their mortgage than a decade ago, and those in Scotland have seen payments fall by just 1.3 per cent.

Abbey said the increase in affordability had contributed to the strength of the property market this year.

Barry Naisbitt, Abbey National's chief economist, said: "The average first-time UK buyer paid 14.1 per cent of income on mortgage payments in the third quarter of 2001 compared with 15.6 per cent in 2000 and almost 19 per cent a decade ago.

"For the housing market, these indicators of affordability point to sturdy underpinnings for the year ahead, which should help to protect the housing market from the worries about global recession."

Mr Naisbitt said that forecasts suggested that interest rates were likely to go up again over the coming year, and though affordability may improve during the next three months, it was likely to reverse as 2002 progressed.